Almunia evalueert voorderingen Tsjechisch convergentieprogramma 2004-2007 (en)

The European Commission today asked the Council to recommend to the Czech Republic to allocate higher-than-budgeted revenues to reduce its deficit and to adhere strictly to the medium-term expenditure ceilings. The Czech Republic is also invited to step up its pension reform and to begin reforming its healthcare system to improve the long-term sustainability of the public finances. This follows the assessment of the updated convergence programme of the Czech Republic for the period 2004-2007 in accordance with EU budgetary surveillance rules.

"The Czech Republic presented a transparent but not very ambitious update of the convergence programme for 2004-2007. While the programme seems adequate to reduce the budget deficit in the medium term, the long-term sustainability of the public finances appears to be at serious risk," said Joaquín Almunia, European Commissioner for Economic and Monetary Affairs.

The updated convergence programme of the Czech Republic for 2004-2007^[1] shows the government aiming to reduce the deficit from 5.2% of GDP in 2004 (including one-off expenditures of 1.2% of GDP) to below the 3% of GDP reference value in 2008, in line with the Council recommendation under Article 104(7). The reduction in the general government deficit over the programme period should be achieved by a cut in the expenditure ratio (by about 3.7% of GDP) which more than compensates the planned reduction in the revenue ratio (by 1.8% of GDP).

The macro-economic scenario underlying the programme expects real GDP growth to be 3.8% in 2004 and to remain broadly constant in the subsequent period. This is below the Commission's own forecasts of last autumn for the years 2004-2006. For the year 2007, the programme's growth estimate is slightly above the Commission's but overall the scenario is plausible.

When compared with the first convergence programme sent in May 2004, there is no change of the deficit targets for 2005-2007 although GDP growth has been revised upwards considerably and the estimated outcome for the 2004 deficit is better than expected (about 4% of GDP excluding one-off expenditures).

Overall, the risks to the budgetary projections in the programme appear broadly balanced. On the one hand, the relatively cautious macroeconomic scenario suggests that revenues could be better than expected and that expenditures could be lower than budgeted.

Moreover, further risks to the budgetary targets linked to state guarantees and debt assumption appear to be limited. On the other hand, important expenditure cuts, particularly regarding government consumption, still have to be adopted in order to meet legally binding expenditure ceilings in 2006 and 2007.

With regard to the evolution of the debt, the updated programme foresees an increase from 37.8% of GDP in 2003 to 40% in 2007, well below the 60% of GDP reference value. However, account should be taken of the serious risk linked with the important projected budgetary costs of an ageing population.

The ECOFIN Council is expected to adopt an opinion on the Czech Republic's convergence programme at its next meeting of 18 January 2005.

Key figures from the updated convergence programme of the Czech Republic (CP) and from the Commission services autumn 2004 forecast (COM)

The full text of the Commission assessment is available on:

http://europa.eu.int/comm/economy_finance/about/activities/sgp/year/year20042005_en.htm

^[1] According to Regulation 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies, Member States that have not adopted the single currency need to submit annual updates of their convergence programme.